Kings Mutual Insurance Company v. Ackermann

Kings Mutual Insurance Company v. Ackermann Court Court of Appeal Date 2010-05-04 Citation 2010 NSCA 39 Docket CA 319679 Judge/Registrar/Adjudicator Fichaud, Joel E. (Honourable Justice) (CA); Hamilton, M. Jill (Honourable Justice); Saunders, Jamie W. S. (Honourable Justice) (CA) Document Type Decision Relations Library Sheet - Kings Mutual Insurance Company v. Ackermann - 2010 NSCA 39 - 2010-05-04 - Library Sheet Decision Content NOVA SCOTIA COURT OF APPEAL Citation: Kings Mutual Insurance Company v. Ackermann, 2010 NSCA 39 Date: 20100504 Docket: CA 317679 Registry: Halifax Between: The Kings Mutual Insurance Company Appellant v. Adrian Ackermann and Kelly Ackermann Respondents Judges: Saunders, Hamilton, Fichaud, JJ.A. Appeal Heard: March 24, 2010, in Halifax, Nova Scotia Held: Appeal is dismissed with costs per reasons for judgment of Hamilton, J.A.; Saunders and Fichaud, JJ.A. concurring. Counsel: Scott R. Campbell and James L. Chipman, Q.C., for the appellant Robert H. Pineo and Douglas A. Caldwell, Q.C., for the respondents Reasons for judgment: [1] The only issue to be resolved in this appeal is whether the jury erred in awarding punitive damages against the appellant insurer, The Kings Mutual Insurance Company (“Kings”), for the manner in which it conducted its investigation into the insurance claim of the respondents, Adrian and Kelly Ackermann. There is no appeal from the quantum of punitive damages awarded or from the jury’s finding that the respondents’ insurance claim itself should be paid. No objection is taken with respect to the charge to the jury. Facts [2] Kings and Mr. and Mrs. Ackermann were parties to a valid contract of insurance which provided coverage to a maximum of $265,000 with respect to the Ackermann’s dairy barn for the peril of “windstorm”, among other perils. On October 3, 2003, the respondents notified Kings that their barn had been damaged by Hurricane Juan on September 28-29, 2003. It was agreed that Hurricane Juan was a “windstorm” as defined in the insurance contract. [3] Wayne Francis Murray, Kings’ Vice President of Claims and Loss Prevention, had the duty to approve or deny claims. He engaged John Douglas Nicholls, an insurance adjuster with Marsh Adjustment Bureau, to investigate the respondents’ claim. Mr. Nicholls in turn engaged Archibald Douglas Frost, a professional structural engineer, to give his opinion on the extent of the damage to the barn and its cause. [4] Messrs. Nicholls and Frost went through the barn with Mr. Ackermann on October 9. Mr. Frost concluded in his October 18 report that “the structural condition of the building had not been affected by the passing of hurricane Juan.” [5] About a week later, Mr. Ackermann engaged David Arthur Browning, a professional engineer specializing in agricultural engineering, to assess the condition of the barn to confirm its safety and to develop a preliminary estimate to repair or replace it. Mr. Browning inspected the barn on October 28. In his report he noted that the barn was damaged, apparently by Hurricane Juan, and may not be safe for continued use. [6] The engineers’ reports were exchanged in November. In light of the difference of opinion between the engineers on the cause of the damage, Mr. Nicholls suggested both engineers meet at the barn to review their opposing findings rather than hire a third engineer. [7] Prior to this meeting Mr. Nicholls provided Mr. Murray with a status report dated January 6, 2004 which included the following: It should be interesting to see if Mr. Caldwell [one of the respondents’ lawyers] can entice Mr. Browning into providing a full detailed report. As you are aware, Chuck Sproule of Sun Rise stables, has not been able to get a reply from Mr. Browning to his request for a detailed report. [8] A meeting at the barn including both engineers took place on February 17. Neither engineer changed his opinion on the cause of the damage to the barn. [9] On February 18, 2004 Mr. Murray sent Mr. Nicholls a copy of a safety survey report dated May 16, 2003 (“the pre-Juan safety survey”) that had been prepared with respect to the barn by Richard W. Forsthye, a Loss Prevention Technician employed by Kings. Mr. Forsythe had inspected the barn most years since the 1970's in connection with determining its liability risk. In the pre-Juan safety survey Mr. Forsythe recorded the following observations and opinions: Recommendations: "No defects noted here today" Roof Condition: "Good" Condition: "Good" Housekeeping: "Good" Attitude: "Good" Liability: "Good" Farm Building Suitable for: "FB" [10] The record indicates “Good” is the best rating available and “Poor” the worst. It also indicates that “FB” means the barn was suitable for insurance coverage including windstorm. [11] In his March 9, 2004 status report to Mr. Murray, Mr. Nicholls stated: Our meeting with Adriana Meloni, Andy Akerman (sic) and Dave Browning was somewhat insightful concerning Mr. Browning. As per our discussions, Mr. Browning offered no new information or reports whatsoever. He basically followed Andy Akerman (sic) through the barn as Andy pointed out the portions of the barn that he felt were damaged by the hurricane. Mr. Browning was obviously intimidated by Archie Frost and was very reluctant to even become involved in the conversation. He was completely and totally of no value whatsoever to Mr. Akerman (sic) or to the discussion reference possible damage to the barn. As noted in his report, Mr. Frost reiterates there is no structural damage that can be attributed to Hurricane Juan. Any structural damage to the building has been caused over the years by the removal of supporting timbers by Mr. Akerman’s (sic) father. (emphasis added) [12] By letter dated April 6 the Ackermann’s lawyer sent Mr. Nicholls three letters dealing with the damage to the barn; one from each of Mr. Ackermann (March 18), Leonard MacPhee, a carpenter, and Brian Chapman (March 16), also a carpenter. [13] Mr. MacPhee’s undated letter states: I began providing carpentry services for Adrian Ackermann in 1999 and have provided said services for every year thereafter except one. Throughout the course of that time period, I frequently entered the Dairy barn of Mr. Ackermann to discuss various aspects of the job at hand. At no time did I notice any leans and/or bends in the support posts attached to the carrier beams of the barn. In August/September of 2003, I was doing construction on the dwelling of Mr. and Mrs. Ackermann up until and including the weekend of September 27, 2003 when Hurricane Juan hit Nova Scotia. There were no noticeable leans and/or bends to the above mentioned posts at that time either. On the morning of September 29, 2003, I arrived at Mr. and Mrs. Ackermann's property on foot to assess any damage that their dwelling may have incurred from the hurricane. Within a week of Hurricane Juan's destruction, I was asked by Mr. Ackermann to come to his farm and assess the support posts attached to the carrier beams in the barn. At such time, I noticed a definite northerly lean of the above said posts especially at the western end of the structure. [14] Mr. Chapman’s letter states: Shortly after Hurricane Juan hit Nova Scotia on September 29 of 2003, I was asked to come and assess the damage on Adrian and Kelly Ackermann's barn. I had studied this structure on several occasions prior to the Hurricane as a matter of genuine interest. As the front half being the west end is constructed using the post and beam method, I was surprised to see the amount of lean on the north‑west corner of approximately four to six inches. This particular aspect of the building now seems to have returned somewhat to its original position. This being the case, the integrity of the connections has been compromised with this much movement at the west end, keeping in mind that the structure at this end was under a full hay load before and after Hurricane Juan. In the hay storage area of the eastern end of the structure, the gussets had a very noticeable twist that would indicate a push or force from the south and/or south‑east. These have not returned to their original position and the amount of twist is indicative of a great deal of stress at this connection point. The steel support posts for the carrier beams located in the main level of the barn where the livestock are kept had a noticeable lean to the north and some actually were bent. Since that time, they have returned somewhat to their original positions. [15] On April 13 the respondents’ lawyer also sent Mr. Nicholls a copy of Mr. Browning’s April 7 letter suggesting Hurricane Juan caused damage to the barn and indicating that the barn should be vacated because of its weakened condition: As to the cause of the damage which has led to this structure’s weakened state, Hurricane Juan has been the most significant event reported during the time when several structural changes occurred. The changes reported by Mr. Ackermann following Hurricane Juan also appear to be confirmed by Mr. Sheehy, Mr. Chapman and Mr. MacPhee as a result of their personal experience with the building. ... It is also my recommendation at this time that the barn should be vacated and as soon as possible. [16] On April 26 Mr. Nicholls forwarded all four letters to Mr. Frost for comment. He agreed “the condition of the barn warranted major repair or reconstruction” but maintained his opinion that the damage was not caused by Hurricane Juan. [17] Despite receiving copies of the letters from Messrs. MacPhee and Chapman, indicating their familiarity with the condition of the barn pre and post Hurricane Juan, none of Mr. Murphy, Mr. Nicholls or Mr. Frost made any suggestion that these third party eye-witnesses be contacted or made any attempt to contact them in connection with the investigation of the Ackermann’s claim. [18] On June 1, 2004 Mr. Forsythe conducted a further inspection of the barn to assess its risk for insurance purposes and reported to Kings by telephone that there was definite damage to the barn since he was last there, that the framing was not safe and that Mr. Ackermann intended to tear it down as soon as his claim was settled. In response, Mr. Murray told him not to speak with the respondents. [19] Mr. Forsythe subsequently filed his safety survey report dated June 1, 2004 (“post-Juan safety survey”): Roof Condition: "Poor" Condition: "Poor" Housekeeping: "Good" Attitude: "Good" Liability: "Poor" Farm Building Suitable for: "FC" (not suitable for windstorm coverage) General Remarks: "Barn structure is weakened and unsafe. In 1976 Adrian's father removed the main support posts, replacing them with braces from the hip roof to the side walls. These braces are now twisted, the hip roof is settled and uneven. The mow floor has separated from the main posts and there is a gap of 2-3 inches at several posts. Adrian stated the barn structure has been condemed [sic] and he will be demolishing the building this summer. See photos. The damage is obvious and appears new since I last inspected." [20] The record indicates “FC” coverage would include less perils than “FB” coverage. [21] At no time did Mr. Murphy provide Mr. Nicholls with a copy of the post-Juan safety survey. Mr. Forsythe, Kings’ own employee who had seen the barn prior to and after Hurricane Juan, was never interviewed in connection with the investigation of the Ackermann’s claim. [22] On June 2 the respondents’ lawyer wrote Mr. Nicholls indicating that the respondents were maintaining their claim. The next day Mr. Nicholls faxed Mr. Murray stating: It does not appear she [the respondents’ lawyer] will be going away anytime soon and I can only assume she is relying on Mr. Browning’s opinion and he is no doubt preparing the replacement cost as well.... (emphasis added) [23] On June 30 the Ackermann’s lawyer sent Mr. Nicholls a copy of Mr. Browning’s subsequent June 16 report confirming his opinion that the damage to the barn was caused by Hurricane Juan: It is my opinion that this lateral movement of the barn provides adequate confirmation that the barn has been seriously damaged as a result of Hurricane Juan. It is also my opinion that the barn was structurally sound prior to Hurricane Juan because it did resist the tremendous wind pressures of the storm as reported by Environment Canada. Those pressures were indicated as in excess of the values presented for design purposes by the Canada Building Code. If the barn was not structurally adequate at the time of the storm it would have most certainly suffered much more extensive damage as a result. ... It is my recommendation that the barn should be taken down as soon as possible to remove the danger of any unexpected collapse. ... The barn was structurally adequate prior to Hurricane Juan as clearly demonstrated by its ability to with-stand the effects of the storm as well as it did. [24] Mr. Nicholls forwarded Mr. Browning’s report to Mr. Murray by letter dated July 3. Mr. Nicholls’ letter contained the following: Wayne: I received the attached fax from Sol Meloni on 30 Jun 04. Mr. Browning is certainly running up quite a bill for Adrian. His comments on the bottom of paragraph two “The (sic) does appear to verify your contention that the barn has been significantly weakened as a result of Hurricane Juan.” are basically ridiculous. His opinion that 3" of movement confirm the weakened state of the building without mentioning the structural weakness caused by the removal of the main roof supports, and the fact that Adrian has probably removed hundreds of bales of hay weighing several tons over the past few months, would also cause the building to shift. It does appear he has the insured and the solicitor convinced he knows what he is doing. I do note there is no indication they intend to tear the barn down even though Mr. Browning has recommended it several times. (emphasis added) [25] The record indicates Mr. Nicholls had no knowledge of the amount of Mr. Browning’s invoice at that time. [26] On July 5 Mr. Nicholls again reported to Mr. Murray and, in relation to Mr. Browning's recommendation to the respondents that the barn be torn down, stated: ... I note he is now recommending the barn be torn down, it will be interesting to see if the barn is actually removed. I expect I will receive the proof of loss from [respondents’ counsel] in the near future which Kings Mutual will no doubt reject. [27] On July 19 the respondents remitted their proof of loss. By letter dated August 23 Mr. Nicholls suggested to Mr. Murray that it be rejected, which it was on August 26. The respondents commenced their action against Kings on September 9, 2004. [28] On January 17, 2006, Mr. Frost was discovered. During that discovery he was shown a copy of the following letter from Peter Sheehey who had done barn repairs for the Akermanns: I have been providing services for the dairy farm located at 516 North Salem Road, Shubenacadie, Nova Scotia for more than twenty years. I was at the farm owned and operated by Andy and Kelly Ackermann shortly after Hurricane Juan hit their property and buildings on the 29th of September, 2003. Having seen the barn numerous times over several years, I noticed the south side of the structure was pushed in towards the north. The barn was also apart from the feed bin, when it was always in full contact. Some steel support posts within the barn where the livestock resided, were replaced by my business a short time before the hurricane with base plates as well. After the storm, two of them had punched right through the cement floor and several others were leaning towards the north and obviously no longer straight. Inside the barn, at the northeast section, where the tie bar is located, I had to reinforce the bar with a steel pipe extending from the floor to the ceiling. Upon the passing of White Juan on February, 2004, I returned to the Ackermann's farm and the pipe I installed was leaning to the south. After Hurricane Juan, in the second level of the barn or Hay Mow, I noticed that the wooden braces from floor to hip level of the barn roof, were obviously extremely distorted. The long lengthwise beam at the hip level of the roof along the north aspect of the inside was no longer straight as it once was. This was most apparent looking down on it from the hay elevator located at the peak of the structure. In the 1970's, my father Bob Sheehy of Sheehy Enterprises owned the business and it was he and myself that installed the hay elevator in the hay mow of the dairy barn not then owned by Andy and Kelly Ackermann. It was installed in one piece, thus proving that there were no cross beams present at that time. It would have been impossible to install it in one piece if cross beams were present. [29] Again, none of Mr. Murray, Mr. Nicholls or Mr. Frost contacted Mr. Sheehey despite his familiarity with the barn pre and post Hurricane Juan and despite Kings’ continuing obligation to assess the Ackermann’s claim in good faith. [30] The respondents amended their statement of claim on October 10, 2006 to add a claim that Kings breached its duty of good faith. [31] The record also indicates that both Mr. Murray and Mr. Nicholls testified that they found Mr. Ackermann to be honest, sincere and cooperative and that he would be in the best position of anybody to know when the damage occurred to the barn given that he milked cows there twice a day. [32] The trial took place over eight days before Justice Arthur J. LeBlanc sitting with a civil jury. No criticism has been made of the judge’s charge to the jury. The jury awarded the Ackermann’s the full amount of their insurance coverage, $265,000, together with punitive damages in the amount of $55,000. The jury specifically made a finding of bad faith in relation to Kings’ denial of coverage under the policy and found that King’s conduct offended its sense of decency. Issue [33] As indicated, there is only one issue on appeal. Did the jury err in awarding punitive damages against the insured? Standard of review [34] The appropriate standard of review was articulated by the Supreme Court of Canada in Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595: [101] The "rationality" test applies both to the question of whether an award of punitive damages should be made at all, as well as to the question of quantum. ¼ [107] ... [T]he test is whether a reasonable jury, properly instructed, could have concluded that an award in that amount, and no less, was rationally required to punish the defendant's misconduct. [108] This test provides an appellate court with supervisory powers over punitive damages that are more interventionist than in the case of other jury awards of general damages, where the courts may only intervene if the award is "so exorbitant or so grossly out of proportion [to the injury] as to shock the court's conscience and sense of justice". In the case of punitive damages, the emphasis is on the appellate court's obligation to ensure that the award is the product of reason and rationality. The focus is on whether the court's sense of reason is offended rather than on whether its conscience is shocked. (emphasis added) Analysis [35] The jury provided the following answers to the questions put to it concerning Kings’ bad faith, whether Kings’ conduct offended the jury’s sense of decency and the amount of money required to punish Kings: 6. Was the denial of coverage under the insurance policy made in bad faith? Yes 7. If the answer to question 6 is yes, does the defendant’s conduct offend your sense of decency? Yes 8. If the answer to question 7 is yes, what is the amount of money required to punish the defendant? $55,000 [36] At the hearing in this court, counsel for Kings acknowledged, properly in my view, that if the jury’s finding of bad faith stands, then, given the standard of review, this court would have great difficulty overturning the jury’s award of punitive damages. So the analysis focuses principally on whether this court should overturn the jury’s specific finding of bad faith. [37] I agree with Kings that an insurer will not necessarily be in breach of its duty of good faith by incorrectly denying a claim that is eventually determined judicially to be legitimate; Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, ¶ 71. Also, an insurance company can often rely on an expert’s opinion to adequately support its denial. That being said however, one thing that can lead to a breach of the duty of good faith and an award of punitive damages is the denial of a claim which resulted from the overwhelmingly inadequate handling of a claim; Fidler, supra, ¶71. [38] The appellant is correct that punitive damages are only awarded in rare and exceptional circumstances where a party’s actions are deserving of punishment, deterrence or denunciation. Kings argues that the jury erred in awarding punitive damages against it because its handling of the Ackermann’s claim was not overwhelmingly inadequate. To the contrary it argues that its investigation was adequate, if not perfect, because (1) it did not ignore any evidence concerning damage to the barn, (2) it did not engage in the type of “tunnel vision” disapproved of in Whiten, i.e. that it was not intent on denying coverage from the outset regardless of the evidence before it, pointing to Mr. Frost’s opinion supporting its denial, and (3) there was no evidence that it was trying to take advantage of the Ackermann’s economic vulnerability or gain bargaining leverage by denying their claim. [39] I disagree. On the facts of this case, where both Mr. Murray and Mr. Nicholls testified that they found Mr. Ackermann to be honest, sincere and cooperative in asserting the respondents’ claim and that he would have been in the best position of anybody to know when the damage to the barn occurred given that he milked his cows there twice every day, Kings failure to instruct its adjuster to follow up with, or have Mr. Frost follow up with, Messrs. MacPhee, Chapman, Sheehey and Forsythe as to the state of the barn prior to Hurricane Juan, each of whom had first hand knowledge of the pre Hurricane Juan state of the barn, was tantamount to ignoring relevant evidence. After all, the opinion Mr. Frost was called upon to give required an assessment of the state of the barn pre and post Hurricane Juan. Each of these men had seen the barn prior to the hurricane in circumstances where it’s condition was of interest to them. One of them, Mr. Forsythe, was an employee of Kings who inspected the barn four months before the hurricane for the purpose of assessing its insurability. He would have been readily available to Mr. Nicholls and Mr. Frost. Messrs. MacPhee, Chapman and Sheehey were third party eye-witnesses to the state of the barn prior to the hurricane. As perhaps indicated from the outcome of the trial where they testified, their evidence was of crucial importance to the determination of when the damage occurred. The fact their letters were forwarded to Mr. Nicholls indicates that they too would have been readily available to Mr. Nicholls, Mr. Frost and Mr. Murray. Instead of interviewing these four men, Kings essentially ignored their evidence for purposes of its investigation into the Ackermann’s claim. [40] Mr. Frost’s failure to follow up with these eye-witnesses as to the state of the barn before Hurricane Juan weakened the value of his opinion as to the cause of the damage. Both Mr. Nicholls and Mr. Murray were aware that Mr. Frost had not followed up with them. [41] In addition, Messrs. Nicholls and Frost were prevented from taking into account in their investigation the post-Juan safety survey by Kings failure to provide a copy of it to them. The fact Kings had this report itself did nothing as far as the investigation into the Ackermann’s claim was concerned, as the investigation was in the hands of Mr. Nicholls. The two safety surveys prepared by Mr. Forsythe, set out in ¶ 9 and 19 above, indicate the vastly different facts concerning the condition of the barn before and after Hurricane Juan. Whether knowledge of the post-Juan safety survey would have affected the result of the investigation cannot be known at this point, but the withholding of it in itself added to the picture that was before the jury of a flawed investigation. [42] An overview of the reporting by Mr. Nicholls to Mr. Murray, several examples of which are noted in ¶ 7, 11, 22, 24 and 26 above, suggest that the investigation was not undertaken in an unbiased and objective manner. Mr. Nicholls’ reports suggest that very early on in the investigation he took a partisan position supporting Kings. The tone and phraseology he used suggest this. They show disdain for Mr. Browning, whose opinion the jury ultimately accepted, and for the Ackermann’s counsel. The jury knew Mr. Murray took no steps to distance himself from these remarks of the adjuster who he had engaged to investigate the claim. [43] As to Kings’ “train of thought”, the jury could reasonably conclude that by failing to follow up with the third party and in-house eye-witnesses as it should have done, Kings had “tunnel vision” with respect to the Ackermann’s claim from the time it received Mr. Frost’s opinion on October 18, 2003. [44] As to Kings’ argument that there is no evidence it was trying to take advantage of the financial position of the Ackermann’s relative to itself, the jury saw Mr. Nicholls’ reference to the size of the bills Mr. Browning was running up with the Ackermann’s, alluding to the economic cost to the Ackermanns of pursuing their claim in the face of Kings denial, and knew Mr. Nicholls had no knowledge of the amount of Mr. Browning’s invoice at the time he referred to it in his July 3, 2004 report. [45] It is agreed the jury was properly instructed on the law of punitive damages. Therefore the test for us is, whether a reasonable jury could have concluded that an award of punitive damages was rationally required to punish Kings’ misconduct. [46] The jury’s answers to the questions put to it clearly indicate its findings of bad faith in relation to Kings’ denial of coverage under the policy and that King’s conduct offended its sense of decency. This indicates the jury was satisfied Kings’ conduct of its investigation was outrageous. My review of the record satisfies me that this was a conclusion a reasonable jury could reach and that an award of punitive damages was a rational response on the jury’s part to its findings. It was not an inevitable or unavoidable response, but it was a rational response to what the jury saw and heard. Without an award of punitive damages, Kings would not have been required to pay more than its policy required it to pay and there would be nothing to deter it from acting similarly in the future; by not following up on all of the evidence relevant to a claim, withholding critical information from the adjuster engaged to investigate a claim and allowing the adjuster to present the results of his or her investigation in a partisan, biased and unobjective manner. The actions of Kings were exceptional, justifying an exceptional remedy. Conclusion [47] I would dismiss the appeal with costs in the amount of $3,000 plus disbursements payable by Kings to Mr. and Mrs. Ackermann. Hamilton, J.A. Concurred in: Saunders, J.A. Fichaud, J.A.